Can I Use a Defined Benefit Plan to Reduce My Taxes?

Yes — a defined benefit plan (or its modern cousin, the cash balance plan) allows self-employed individuals and small business owners to contribute far more than the limits on a 401(k) or SEP-IRA, sometimes $100,000 or more per year depending on your age and income. Contributions are fully deductible, making this one of the most aggressive tax reduction strategies available to high-earning self-employed professionals. However, defined benefit plans are complex: they require annual actuarial calculations, mandatory contributions regardless of profitability, and formal plan documents. They work best for high earners over 50 who want to make very large deductible contributions in the years before retirement. An actuary and a CPA are typically needed to establish and maintain one.